Big news hit the wires yesterday afternoon, as the Fed made a blockbuster announcement that sent Mortgage Bonds into rally mode. The Federal Reserve announced that over the course of 2009, they will purchase an additional $750B of Mortgage Backed Securities in an effort to help the housing market and keep rates low. On the announcement, Mortgage Bonds exploded higher, yielding prices at the best levels that we have seen in some time.

Great news right? Not exactly…

Fed purchases may keep a lid on rates, but not necessarily push them dramatically lower. HUH?

Remember that lenders are still not working at max capacity and like all things American, are very likely not going to pass all the gains through to the rate sheets delivered to the consumer (More Profit). The good news is that perhaps this will help lenders feel a bit more comfortable staffing up HR a bit as this massive buying will likely keep rates from moving significantly higher. (Faster turn times)

Bottom line - although the media is already spinning it differently (10% truth, 90% hype), this is NOT a time for clients to stay on the fence, hoping and waiting for lower rates. Home loan rates remain within inches of all-time historic lows, and may not necessarily move significantly lower.

Now...something else worth paying attention to.

Since yesterday's Fed Meeting, the US Dollar has been hit hard, as the aggressive Fed moves appear quite INFLATIONARY (not good for rates). In turn, this has pushed Oil up to $51 per barrel, nearly $5 higher since yesterday afternoon. Gold, which is purchased as a hedge against inflation, is up near $950 an ounce - moving up $60 on the day! While we know there is no inflation at the present time, the potential for future inflation could have a negative effect on Mortgage Bond prices ahead, or at least stifle their move towards lower rates - yet another reason to get your clients lined up to take advantage of present historically low rates.

Ryan Ogata
Senior Mortgage Consultant